Globalization of the world cereal market

By José Manuel Álvarez, General Secretary of the Association of Trade in Cereals and Oilseeds of Spain (ACCOE)

The Law of Supply and Demand is neither written nor actually law. It is basically a precept that explains that the market price of a particular commodity moves directly according to the number of potential buyers, and inversely to its availability. That is to say, not to say: the greater existence of a product will lower its price, as will increase the availability or increase in consumption. Common sense, right?

However, in our country there are everlasting voices that, year after year, at the beginning of each cereal campaign augur a price increase, regardless of the actual prospects of harvest. They hurt the ears every June when these armchair spokesmen, dressed in corduroy for photos, blame low grain prices on the ‘mean’ operators who deny bread and salt to struggling farmers.

In markets, nothing depends on the color of the glass you are looking at (the inverse of another law, Campoamor’s Very Appropriate!). Do not put a bandage on your eyes

The reality is that we have been in a series of consecutive years in which the world production of cereals and oilseeds has grown to levels that a few decades ago would have been considered science fiction. Although Spanish harvests did not reach high levels, which is not the case this season, we are not isolated from our environment. Currently, a high national production no longer means, as before, a drop in prices, or vice versa, no matter how much some are committed.

Let’s review the data. The Spanish cereal crop has reached this year for most, a historical record. For others, it has stayed on the doorstep. It’s hard to count so much grain. Simplifying and not creating more controversy: we have had a very good harvest in quantity. Not so in quality, but this is another sing and also we have not stayed with the exclusive. Thus, according to data from the Ministry of Agriculture, the capacity of Wheat has increased by 25.5%; The one of the Barley, our majority culture, 48%; The one of the Avena, Rye and Triticale 44%, 34% and 21% respectively. We have tapped slightly on Durum Wheat, with a fall of 5% and Corn, which has continued its decline in recent years due to its higher production costs and, therefore, low profitability, with 8% less.

In summary, and according to the same Ministry, the Spanish cereal crop has surpassed 23 million and a half tons compared to almost 19 in the summer of 2015. So the aforementioned doormen have been a little more quiet this year.

The fact is that for some time now, as in the past, in most campaigns, for practical purposes, no matter what we produce. I insist, we are not foreign to our surroundings nor our borders are closed. On the other hand, yes, we are a country clearly deficient. Our industrial capacity to process cereals and oilseeds is far superior to our production power of raw material, but we also have numerous port facilities that regularly supply with imports the rest we lack. Why would a feed manufacturer want to buy Spanish barley at 170 €/Tn if it can buy Ukrainian wheat at 156?

“The availability is being so high thanks to the good global harvests being, in short, the port that sets the price of the product”

Reviewing the estimates of the International Grains Council, we find that in less than ten years the human being has managed to produce on average 200 million more tons of cereals per year. With this, not only has the “craving” of the emerging countries been solved (momentarily?), But we have also learned to make fuel with the grains and, at the end of each campaign, we have enough.

So what? The United States Department of Agriculture (USDA), the International Grain Council (IGC) and the Food and Agriculture Organization of the United Nations (FAO) tell us that in 2016/17, Cereals, along with the abundance of stocks, point to a generally comfortable balance between global supply and demand.

It is estimated that once the machines are finished harvesting, cereal production will have reached an all-time high, with record figures for maize and wheat

Also, despite the further increase in demand, it appears that the final stocks of the main exporters will reach their highest levels in the last seven years.

Finally, with this panorama of balance, the market takes advantage of any minimum gap to make their pinitos. At the moment due to certain factors of the conjuncture, retention in the Black Sea, small logistical problems, change in the euro / dollar parity … we are witnessing an increase of the quotations. However, do not rub your hands: nothing seems to indicate that this will last. All the futurists agree that with the conditions of stock balance so positive sooner or later the waters will return to their course. And then, to see what it rains in the spring and to start again.